IIGCC BLOG

Developing investment beliefs, writing a climate policy and convincing your board to take action !

Jennifer Anderson, Responsible Investment Officer at The Pensions Trust

What can Europe’s Leading Pension Funds tell us about climate change governance? This was the subject of IIGCC’s recent Climate Solutions programme workshop where we explored how to develop a climate change policy and secure buy-in from your board to implement it. I was joined by Daniel Ingram from BTPS and Karianne Lancee from Unilever to share experiences from this process.

IIGCC’s Climate Change Investment Solutions Guide recommends embedding climate change into the investment governance structure through: Inclusion of climate change in the statement of investment beliefs, in the investment policy and through setting of targets that are actionable and transparent.

I wanted to investigate what kind of language, values, strategies and targets were used to make up climate change policies in some leading pension funds. Referring to the 2016 ranking for by the Asset Owners Disclosure Project (AODP), I wasn’t surprised to see IIGCC members making up 7 of the 10 top-rated funds.

Making reference to climate change in your beliefs is a powerful and important way to start. It is clear this group of pension funds all make very clear reference at a top level to sustainability in their beliefs and clearly link this to the material risks and opportunities that tie climate change to long term risk and performance. Most have also updated recently, with clear targets for a 5 year forward horizon to 2020.

Each scheme has gone about this slightly differently to reflect their context, sponsor, regulatory environment and the focus of their beneficiaries. My colleagues agreed that there were challenges to keep climate change on the agenda when there are so many issues facing pension funds as alongside the persistent challenge to measure and analyse climate risk within portfolios.

Key takeaways from the workshop were that to get started it’s helpful to invite external speakers to address your investment committee and to set up a sub-committee on climate change. It’s also important to think in terms of how a portfolio would perform under different scenarios and then try to assign probabilities or pick a scenario that the scheme has ascribed to under its beliefs. In today’s world pension funds must understand how the valuations of high carbon assets will be impacted in a low carbon future scenario.

With IIGCC’s focus now on implementation of climate polices and investment practices, I look forward to more practical discussions through IIGCC’s Climate Solutions programme. The next workshop on 16th June is on climate and sovereign ratings and other workshops later in the year on will address carbon risk in passive portfolios and increasing exposure to low carbon investments.